By Kylie MacLellan
LONDON (Reuters) - Britain could slash corporation tax to 10 percent if the European Union refuses to agree a post-Brexit free trade deal or blocks UK-based banks from accessing its market, the Sunday Times reported, citing an unidentified source.
The newspaper said the idea of halving the headline rate from 20 percent had been put forward by Prime Minister Theresa May's advisers amid growing fears other EU member states will take a hard line in Brexit negotiations.
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The tax cut would be used to try and persuade the EU to grant "passporting" rights for financial services firms to continue operating across the EU, the newspaper said, in a sign of the likely animosity of the upcoming divorce talks.
At a Brussels summit last week EU leaders were clear they would not allow Britain to "cherry pick" things such as free access to the market for certain sectors without taking on the full responsibilities of EU membership.
"People say we have not got any cards," the newspaper quoted an unidentified source familiar with the British government's thinking as saying.
"We have some quite good cards we can play if they start getting difficult with us. If they're saying no passporting and high trade tariffs we can cut corporation tax to 10 percent," the newspaper quoted an anonymous source as saying," the source was quoted as saying.
Cutting corporation tax could attract companies away from the EU to Britain, boosting its economy and challenging Ireland's preeminence as Europe's low tax home for large international companies.
EU leaders have warned that if Britain places limits on the free movement people it will lose its preferential access to the single market, leaving London-based international banks worried they could lose their right to sell services across Europe.
Writing in the Observer newspaper, the chief executive of the British Bankers' Association said the uncertainty over Britain's future relationship with the EU meant most international banks were already looking at which operations they would need to move out of the UK.
"Their hands are quivering over the relocate button. Many smaller banks plan to start relocations before Christmas; bigger banks are expected to start in the first quarter of next year," Anthony Browne wrote.
Japanese carmaker Nissan <7201.T>, whose Chief Executive Carlos Ghosn met May this month to discuss his concerns over Brexit, on Sunday denied a story in the Telegraph newspaper that it had decided to make its new Qashqai model in Britain.
Nissan's CEO has warned he could scrap potential new investment in Britain's biggest car plant unless the government pledges compensation for any increased tax costs resulting from Brexit.
"No decision has yet been taken. That decision making process concludes next month," a spokesman at Nissan told Reuters.
(Additional reporting by Costas Pitas; editing by Guy Faulconbridge)